Barnes Corporation expected to sell 150,000 board games during the month of November, and the company’s master budget contained the following data related to the sale and production of these games: Revenue $2,400,000 Cost of goods sold: Direct materials 675,000 Direct labor 300,000 Variable overhead 450,000 Contribution margin $ 975,000
Fixed overhead 250,000 Fixed selling and administration 500,000 Operating income $ 225,000 Actual sales during November were 180,000 games. Using a flexible budget, the company expects the operating income for the month of November to be

$225,000 $270,000 $420,000 $510,000

Correct - Your answer is correct.

Wrong - Your answer is wrong.

Detailed Answer

Answer (C) is correct. Revenue of $2,400,000 reflects a uni The contribution margin is $975,000, or $6.50 per game ($975,000 ÷ 150,000 games). Increasing sales will result in an increased contribution margin of $195,000 (30,000 games × $6.50). Since fixed costs are, by their nature, unchanging across the relevant range, net income will increase to $420,000 ($225,000 originally reported + $195,000).